Now is a good time to invest in value stocks, says Christopher Marangi, co-chief investment officer for value at Gamco Investors. That’s the money-management firm founded by the legendary investor Mario Gabelli.
Investors’ current focus on cash flow should help value stocks, Marangi says. Among the industries he likes are consumer companies, industrials, technology, media, telecom and utility companies.
Marangi sees room for both passively and actively managed funds in an investor’s portfolio. But now looks like a good time for active managers.
Here are his comments, including a few stock picks.
Street.com: What’s your investment philosophy?
Marangi: We’re bottom-up, fundamental-research, value investors. We compare what an informed buyer might pay for a business to its public valuation. And then we identify events such as a management change or consolidation that would close the gap between them.
Street.com: What’s your outlook for the stock market as a whole this year?
Marangi: There are some headwinds, such as rising interest rates and geopolitical uncertainty. Earnings have held up surprisingly well but are still pressured by rising costs.
However, a lot of negatives are already priced into this market. Stocks have rebounded recently as investors are contemplating what can go right.
We expect a lot of volatility but don’t think the market will ultimately move much this year. In the next five years, our time frame, we think the market finds its equilibrium and goes much higher.
Street.com: Where do you see the best investment opportunities now?
Marangi: Industries with predictability and pricing power. That includes some consumer, industrial, technology, media, telecommunications and utility companies. We generally avoid commoditized sectors, such as energy.
In addition, we have identified a handful of themes: the secular rise in live entertainment, growth in aerospace/defense, reshoring and a pivot to sustainability. [Reshoring refers to companies moving production back to their home areas.]
Gamco Investors/TheStreet
Street.com: Can you talk about a few of your favorite stocks?
Marangi: 1. The tracking stock for the Atlanta Braves: Liberty Braves (BATRA). There has been a dramatic, decades-long appreciation in sports-team values, but limited ways for stock-market investors to participate. One of our favorites is this one.
You’re effectively paying $1.8 billion [the stock’s market-cap] for the team. The New York Mets sold for $2.4 billion in 2020. We think the Braves are worth as much as $3 billion.
They have more revenue than the Mets, who share the New York market with the Yankees. The Braves have almost all of the Southeast to themselves. The company announced a spinoff of the Liberty Braves in the first half of this year, and we expect a sale in the next 12 to 18 months.
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2. Grupo Televisa (TV). It’s based in Mexico and owns 45% of Televisa-Univision, the largest Spanish-language content producer, TV broadcaster and streamer.
Grupo Televisa is also the largest provider of cable and broadband in Mexico. Moving manufacturing from Asia to Mexico should ultimately put more money in the pockets of Mexicans, supporting consumer spending and advertising.
The stock trades at two to three times earnings before interest, taxes, depreciation and amortization versus six or seven times for companies in the U.S. We think the stock is worth as much as $18. [It recently traded at $5.90.]
3. Textron (TXT). It’s a midsized aerospace and defense company. Its Cessna and Beechcraft units benefit from the trend toward private aviation around the world. On the defense side, global conflicts should support defense outlays, including for the next-generation helicopter Textron will produce. We think Textron is worth over $100 per share. [It recently traded at $74.80.]
Street.com: What’s your view about value versus growth?
Marangi: They’re often presented as polar opposites, but investors in both camps are trying to buy stocks for less than they’re worth. It’s just that they often possess different time frames -- an emphasis on the present for value and the future for growth.
Higher interest rates make near-term cash flow more important and make it harder for disruptors to fund profitless growth. After a decade of being trounced by growth, these factors have led to a revival in value investing.
Street.com: Do you think individual investors should have both actively and passively managed funds?
Marangi: Investors are usually well-served by diversification, including both active and passive. Passive allows for participation in the attractive long-term returns of equities. But passive may be a victim of its own success, with the major indices dominated by a handful of companies. There is a place for managers who think and act differently.
